New Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the continuation of the Credit Guarantee Fund for Micro Units (CGFMU) for five more years, until March 31, 2031.
The extension is expected to facilitate loans worth ₹12.6 lakh crore under the Pradhan Mantri Mudra Yojana (PMMY) over the next five years, with an approved corpus of ₹5,000 crore.
The Credit Guarantee Fund for Micro Units provides credit guarantee coverage to lending institutions against the risk of default on eligible loans.
The guarantee is provided through the National Credit Guarantee Trustee Company Limited (NCGTC).
The continuation of the scheme is aimed at supporting collateral-free lending to micro enterprises and strengthening access to formal credit for small entrepreneurs.
Credit Guarantee Fund for Micro Units: Over 60 Crore Mudra Loans Sanctioned
Since the launch of the Pradhan Mantri Mudra Yojana, lending institutions have sanctioned more than 60.36 crore loans amounting to ₹43.34 lakh crore as of September 2026.
Launched in January 2016, the Credit Guarantee Fund for Micro Units has played a significant role in facilitating the expansion of PMMY lending across the country.
The CGFMU provides a credit guarantee to lending institutions, helping them extend loans to eligible borrowers while mitigating their exposure to potential defaults.
With the latest Cabinet approval, the scheme will continue to support eligible loans during the XVIth Finance Commission cycle, covering financial years 2026-27 to 2030-31.
Which Loans Are Covered Under the Credit Guarantee Fund for Micro Units?
The Credit Guarantee Fund for Micro Units provides guarantees to lending institutions for the following credit facilities:
1. Loans under Pradhan Mantri Mudra Yojana: Loans of up to ₹20 lakh extended to eligible micro enterprises under PMMY.
2. Overdrafts under Pradhan Mantri Jan Dhan Yojana: Overdraft facilities of up to ₹10,000 provided by banks through PMJDY accounts.
3. Loans to Self-Help Groups: Loans granted to Self-Help Groups (SHGs) where the portfolio size is between ₹10 lakh and ₹20 lakh.
These provisions are intended to facilitate access to credit for micro enterprises, small borrowers and Self-Help Groups.
Credit Guarantee Coverage and Revised Guarantee Fees
Under the Credit Guarantee Fund for Micro Units, guarantee coverage is linked to the amount disbursed in the case of working capital limits. For term loan accounts, the coverage is linked to the outstanding loan amount.
This structure is designed to reflect the actual risk exposure of lending institutions.
The Cabinet-approved continuation also provides for a reduction in the guarantee fee for eligible loans.
The guarantee fee has been reduced from 1% per annum to 0.75% per annum. However, there will be no change in the guarantee fee applicable to Self-Help Groups.
For SHG loans, the guarantee fee will continue at 0.25% for the first year and 0.50% in subsequent years.
Credit Guarantee Fund for Micro Units to Support ₹12.6 Lakh Crore in Loans
The extension of the Credit Guarantee Fund for Micro Units is expected to facilitate loans amounting to ₹12.6 lakh crore over the next five years.
According to the government, collateral-free loans under the Pradhan Mantri Mudra Yojana have created opportunities for a new generation of entrepreneurs who were previously unable to access loans through the formal banking system.
The continuation of CGFMU is expected to further strengthen this lending ecosystem by encouraging financial institutions to extend credit to aspiring entrepreneurs and micro enterprises.
The scheme is also expected to act as a catalyst for young entrepreneurs seeking to establish and expand their businesses.
The government said the extension would help sustain the flow of institutional credit to micro enterprises and support entrepreneurship across the country.
